There was a shift in the global economic cycle towards slower growth during the first half of 2018. The trade war and Brexit increase the risk of recession.

Global growth has slowed substantially during the course of the current year. One cause of this has been the trade war between the United States and China. Brexit, too, has added to the uncertainty surrounding the future course of the economy.

Slower-than-target inflation and a persistent decline in inflation expectations are key challenges for monetary policy. A negative equilibrium of prolonged low inflation and zero interest rates would fundamentally weaken monetary policy’s room for manoeuvre in balancing fluctuations in the economic cycle.

The economic outlook for the euro area has deteriorated rapidly. The impact of Brexit on Europe as a whole is hard to predict. Another factor overshadowing the global economy is the trade dispute between the USA and China.

The summary provides a simple introduction to the assessment of developments in the global economy and monetary policy presented in the March edition of the Bank of Finland Bulletin.

A review of the ECB’s monetary policy strategy is due in light of the latest economic research and the changed operating environment.

In times of uncertainty, prudence is justified in the normalisation of monetary policy.

The favourable outlook for the global economy is overshadowed by the threat of protectionism. In the euro area growth has picked up. Some of this acceleration is on a sustainable basis, but long-term growth is likely to remain slower than pre-crisis growth.